The yen strengthened initially, with USD/JPY falling to nearly 146.60 amid low US 2-year yields. Japanese data showed January household spending at +0.8% year-on-year, below the +3.6% estimate, and a revised Q4 GDP of +2.2%, down from +2.8%.
Following this, USD/JPY rebounded to above 147.20 before settling around 147.00. US equity indices fell due to recession concerns, although there was a slight recovery.
EUR/USD had minor fluctuations but trended higher, while Italy proposed a European guarantee scheme for up to €200 billion. Australian business confidence decreased in February, although conditions improved.
The Yens Initial Strength
The yen initially gained strength as the US 2-year yield dropped, pushing the dollar lower against the Japanese currency. However, that movement was short-lived. A weaker-than-expected household spending report from Japan, along with a downward revision in fourth-quarter GDP growth, failed to provide sustained momentum. The exchange rate fell near 146.60 before reversing course, climbing back above 147.20, and eventually stabilising at a slightly lower level.
Shifts in sentiment were evident elsewhere. US stock markets declined as recession worries resurfaced, but not without some stabilisation. The response in equities mirrored concerns about broader economic conditions, with investors weighing near-term risks against the possibility of slower growth extending further into the year.
The euro had a relatively quiet session but managed to stay on an upward trajectory against the dollar. Meanwhile, an initiative from Italy to establish a European guarantee scheme worth up to €200 billion entered discussions. This policy move could have longer-term implications, particularly for sovereign debt markets across the region.
Australias Economic Data
Australia’s data release gave mixed signals. Business confidence edged lower in February, indicating growing caution, yet the assessment of current conditions showed improvement. That divergence suggests that while firms may see headwinds ahead, actual activity remains steady for now.
Short-term volatility should not be dismissed, particularly given the ongoing shifts in rate expectations and the broader narrative surrounding global growth. The movements seen in the yen and the dollar reflect responsiveness to inflation trends and central bank decisions. Interest-rate differentials remain a key factor in currency behaviour, and recent price action underscores how quickly market sentiment can change.
The euro’s gradual increase aligns with broader positioning and potential shifts in fiscal discussions within the eurozone. While no immediate market-moving decisions have been finalised, Italy’s proposal could introduce further policy conversations that warrant attention.
Fluctuations could persist as traders weigh economic data against expectations for central bank moves. The resilience in certain markets contrasts with broader caution in others, emphasising the importance of monitoring macroeconomic signals and policy developments closely.
